University of Chicago - How to Do a Case

8/2/2019 University of Chicago - How to Do a Case

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Management Consulting Group

Casebook SupplementSupplement of Additional Cases and Guides for the 2000-2001

School Year

The University of Chicago GSB

Management Consulting Group 2000-2001

1995, 1996, 1997, 1998, 1999, 2000 by the University of Chicago Graduate School of Business Management ConsultingGroup, Chicago, IL. All rights reserved. No part of this book may be reproduced in any form or by any means, withoutpermission in writing from the publisher.

The University ofChicagoGraduate School of Business


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Note: This is a supplement to current 2ndYear Students from theprior year to supplement the additional cases and literatureadded in this years casebook.

The information included from Pages 1-16 are guides toapproaching cases that might be of use, but were primarily

written for first-year students or those that are unfamiliar withthe case interview experience. Starting from Page 17 are thenew cases that have been included in this years casebook.

Again we would like to thank those members who helpedcontribute to the list of new cases in the book.


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Management Consulting Group Casebook 2000-2001 2

WHATS NEW IN THE MANAGEMENT CONSULTING GROUP

The Management Consulting Groups Webpage has been updated considerableover this past summer and should be a good resource for links to otherresources. The site will be updated regularly to provide you with the most up todate calendar of events sponsored by the Management Consulting Group or

events that relate to consulting at the GSB.The MCG site will also be used this year to allow for continuous improvements tothe Casebook and Resource Guides. As these guides are printed on paperduring the summer, many changes in consulting may not be captured. To betterprepare you for these changes be they in Cases or within the industry,supplements will be available for download if these become necessary.The Management Consulting Group will also be sponsoring a fall lunchtimeseries, which will present many frameworks that may be useful in preparation forcase interviewing. Selected GSB Professors or invited Consultants will presentthese sessions.

ACKNOWLEDGMENTS

The 2000-2001 MCG Co-Chairs wish to thank the following organizations andindividuals for their assistance and support:

Past MCG Co-Chairs who helped compile many of the cases currently included

Office of Career Services for their support and assistance

Office of Student Affairs for helping to make life a lot easier in coordinating allthe logistics necessary to operate the MCG

Current and past Management Consulting Group members who contributed tothe collection of cases in this book

Sincerely,The Management Consulting Group Co-Chairs for 2000-2001

Albert Chow Brad Libby Mark GaffinTrip Meredith Scott Rockfeld Andy Rojeski

Before you start reading...Please understand that this resource guide is based on the opinions and insightsof the past and present Management Consulting Group Co-Chairs.Responsibility for any errors, factual or otherwise,rests with the Management Consulting Group and not with other contributors.


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FORMAT OF THE CASE INTERVIEW

As stated earlier the case interview is the most likely form of evaluation youwill encounter during your interviews with consulting firms. While preparingfor the interviews you will encounter many different opinions on the caseinterview. Some stories you may hear may make it appear to be an elaborateform of torture to a piece of cake. But as with most things it is somewhere inbetween and will be easier with practice. Again the greatest comment inhindsight by those who have gone before you is that they wished they hadpracticed some more.

A standard 30-minute case interview format can be broken down as follows:

1. Greetings / Introductions (1-2 minutes)2. Personal Questions Often focusing on your resume or things you

have done and were of interest to the interviewer, make sure you haveyour story down! (5-10 minutes)

3. The Case Interview Now comes the fun part! (10-20 minutes)4. Wrap-up questions Ask one or two questions that you would like to

know about the firm and is also a good time to ask what the next stepis and their business card (1-5 minutes)

It is important to remember that each interview is different as there have beencases where during the course of an interview no case was ever asked! Inaddition sometimes your background is spun into a pseudo-case where they

will ask pertinent questions to better evaluate you. Of course on the otherhand, there have been interviews where you hit the case the second you sitdown.Often interviews will come in pairs, so you may get a case from oneinterviewer and then receive none from the second. Also do not beintimidated as you will may be interviewed by some very senior partners of afirm. This is not intended to put pressure on you, but gives you an idea howimportant these interviews are to the future of the firm as well.Weve all been through interviews, you went through one to get into the GSB

and were successful. So dont but too much pressure on yourself.

PREPARING FOR THE INTERVIEWAlthough this guide is primarily intended for preparation for the cases, it isvital that you also know your own story from your resume. This reflects theimportance of your resume on the interview, so please take your time inthinking through what you want to put to paper. As it has been found that thefirms usually only look at the first one you submit as it is the one that makesthe official resume book that is put out by Career Services. You may bring anew one to the interview, but your interviewer will most likely have alreadyread your resume from the resume book and noted comments.

Introduction toCase Interviews


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We strongly recommend that you also take advantage of resume readingactivities where career services, alumni, and second years will look over yourresume and comment. The MCG will be holding a resume reading service formembers in October as well.But knowing your story is very important as the GSB has a reputation forbeing too geared into the case and not being very polished on their own

background or story. Thus it is important to not neglect this aspect of theinterview, as stated above there are some interviews where the case will NOTappear and will focus the spotlight directly on you!So when practicing for Cases, it is highly recommended to work in an officialstyle interview where you greet, talk about your background, and then hit thecase. There will be opportunities to practice as well through Mock Interviewssponsored by Career Services and others including the MCG. For first-yearstudents this effort will speed up at the conclusion of second-year recruiting.

As you begin practicing cases it is also very useful to seek the assistance of asecond-year or other individual who has gone through the process. This willbetter prepare you for what to expect from the interview as it is naturally hard

to practice for something youve never experienced first hand.

PRACTICING THE CASE

Although it is obvious that every business student must devote time and effortto practicing the case interview, it is less obvious where to obtain cases withwhich to practice. As each person has different backgrounds, your ability toanalyze cases differs from person to person.The following pages provide over 50 cases for such practice. The generalformat to every case follows a basic four-step exposition: Background,

Question(s), Additional Information, and Approach(es). It must beemphasized that, for any given case, the approach provided represents onlyone suggested methodology for solving the problem and is by no meansintended to be comprehensive or exhaustive. Other solutions may very welloccur to you as you work through the case in question. The approaches aresupplied to give you an idea of what the interviewer might be looking for. It isworth reiterating that the most important qualification for succeeding in thecase is clarifying your though process and communicating the resultspersuasively, not arriving at a specific solution.

Practicing Cases


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APPROACHING THE CASE

As you practice the cases you will most likely develop a style that is mostcomfortable for you. But below are a few basic tips on approaching the case

interview, most of which are common sense.

Basic Approach Tips:

1. Take Notes2. Make no assumptions

a. Who is our client?b. Has the company faced this issue before? If so outcome?c. What have other companies done facing this solution?d. Has the firm already done any research?

3. Ask Questions Concise & Logical4. Remember to listen to the answers you get

5. Maintain eye contact6. Take your time7. Lay out a road map for the interviewer8. Think out loud. Drawing out the problem also helps as consultants are

often very visually based.9. Present thinking in a clear, logical manner. Where useful use frameworks

and business concepts to organize your answer.10.Quickly summarize your conclusions at the end

CASE FRAMEWORKS

As you approach Case Interviews you will hear a great deal aboutframeworks. So what is a framework? These are methods that have beenfound to be useful in structuring your thought process. Many of these aremodels and concepts are right out of classes such as marketing andeconomics.The benefit to following a framework is that it provides a logical flow to yourstory when analyzing the problem. DO NOT fall into the trap that there is aframework that will solve every type of case or that you need to follow aframework to be successful in cracking the case. Many cases you willencounter are specifically scripted to tempt you to try and follow one of thestandard frameworks and draw you into a lengthy discussion that will waste

valuable time.A common method of effectively using frameworks is to understand andintegrate them into your personal methodology of approaching the case.The MCG will be sponsoring several events this fall that will focus onproviding you with more in-depth discussion on the basic frameworks.

Basic Frameworks

The following are methods that will work with most any case:

Cost-benefit analysis - Basic microeconomics and strategy concepts


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Internal vs. external market factors - Strategy and marketing concepts

Fixed vs. variable costs Microeconomics concept

Opportunity Costs - Microeconomics concept

Porters Five Forces (Strategy)

Before any company expands into new markets, divests product lines, acquiresnew businesses, or sells divisions it should view the 5 forces.

1. Potential entrants What is the threat of new entrants into the market?2. Suppliers How much bargaining power do suppliers bear?3. Competition What rivalry exists among present competitors?4. Buyers How much bargaining power do buyers have?5. Substitutes What is the threat of substitute products & services?

Product Life Cycle (Marketing)

Maturity of the product or service1. Emerging Sales gaining, negative profits. Concentrate on R&D and

engineering, define product and generate need with little or nocompetition

2. Growth Sales increasing, profits becoming positive. Emphasizemarketing, manage rapid growth, focus on quality, and expect newentrants.

3. Maturity Sales starting to plateau, profits plateau. Focus onmanufacturing costs, Prices fall and competition increases.

4. Declining Decrease across sales & profits. High-cost and low-sharecompetitors exist, focus on being low-cost or niche strategy

The Four Ps (Marketing)

1. Price: Predatory or Premium effect.2. Product: Product meets a particular customer need. Or extension of

existing products, thus less benefit.3. Position / Place: Physical location is an advantage if superior to

competition. Easier to consume for buyers.4. Promotion: What can it do to stand out in category?

The Four Cs (Marketing)

Especially useful for analyzing new product intros and industry analysis

Customers

How is the market segmented

What are the purchase criteria customers use Competition

What is the market share of the client

What is the market position

What is the strategy

What is their cost position

Do they have market advantages

Cost

What kind of economies of scale does the client have


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What is the clients experience curve

Will increase production lower costs

Capabilities

What resource can the client draw from

How is the client organized

What is the production system

BCG Matrix - Market Share vs. Growth Rate (Marketing)

High

Growth

Low

High LowRelative Market Share (RMS)

A CASE INTERVIEW EXAMPLE

Case Title: Jams & Jelly CompanyBackground: Our client is a jam & jelly manufacturer in the New England

area. They have experienced a drop in profitability over thepast few years.

Question: Why has profitability fallen?

Available Information:

Profitability decreased 2 years ago.

Firm is a single store operation. Niche player so no major competitors.

Product is a premium jam / jelly product line. Small operation, with no new capital, labor, operations investment

expenditures in the past few years.

Revenues have increased

Volume has gone up

Prices have stayed the same

Product mix has stayed the same

No changes in direct material, labor, overhead. But transportation costshave risen.

DogCash Cow

QuestionMark

Star


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Transportation change was instituted a little over 2 years ago (26 monthsago).

Shipping was done to allow for sales in New York and Boston.

The distribution is done by another local firm. They are charging us at therate of transportation, no profit for them. We pass these costs on to ourcustomers.

Bad products are returned with a full refund.Jellies and jams go bad with low temperatures.

Approaches:

Interviewee 1 Interviewee 2 This sounds like a profitability case. Id

like to break this initially into revenueand cost issues. I would guess jams &

jellies have a relatively stable coststructure. So Id like to start withrevenues.

When did profitability drop? Starting with revenues. Whats

happening with revenue trends? Is it because volume is increasing or

price? Why is volume increasing? Are they selling a same mix of jellies?

Interesting, Id like to switch over tocosts.

Variable costs change in directmaterials? Direct labor? Overheadcosts? Transportation?

Why have transportation costsincreased?

Why did you change distribution andwhen?

Tell me more about the distribution? Is there anything different in what he

sells versus our jams & jellies? Is the freezer method affecting our

jellies? What happens when our customers

dont like the product? I would suggest stopping this method of

transportation as it is spoiling the jelliesduring the distribution.

Interesting. May I ask for someclarifying information?

What is the products sold? How big is the firm and how long have

they been in business? Who are the major competitors?

I will be approaching this case byanalyzing the market dynamics andfollowing with profitability analysis.

Starting with market dynamics. Is theoverall market declining?

Who are their competitors? Looking at their costs quickly I want to

confirm no changes to variable coststructure. So any changes inoperations costs? Labor? Product rawmaterials? New capital improvements?

Has the product pricing decreased? Switching gears, have they seen a

change in their product sales, say themix?

So have sales increased? Has volume increased? So product and prices have not

changed? No advertising cost changes? How do they sell the product? So they sell products to New York and

Boston as well. Do these products cost

more to distribute? When was this started? Interesting So they started sell

products a little over 2 years ago. I would state that the problem is in this

distribution program? So how is this shipped? How much does this cost us? What else is shipped with our

products? Is it making our products gobad?


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I would state that the freezer isdefinitely the wrong means to transport.

I suggest ceasing this method andinvestigating into an alternate means oftransportation.

Wrap-up / Analysis

Interviewee 1 Interviewee 2

Attacked it from a profitability angle as thequestion appeared to lend itself to thisapproach.Was looking for inconsistencies in therevenue or costs which were resulting in thelowered profitability of the company.Keyed into the new change in distribution asa potential cause and found it was the rootof the lowered profitability.

Attacked it with elements of the 4Ps andprofitability. These allowed for adetermination of what the market wasinternally and externally for the firm.

Conclusion

The key thing to take away from this example is that there are many ways toapproach a case. By no means should you take either example as the rightway to approach these cases as there is no definitive right or wrong way tocrack the case. What IS important is that your approach is logical andstructured.


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WHAT CATEGORIES?

There are many types of categories, but most can be grouped in general categoriesfocusing on different areas of business. These are as follows:

1. Profitability / Profit Improvement2. Industry Analysis / Market Sizing3. Market Expansion / New Product Introduction4. Pricing5. Investments / Strategic Acquisitions6. Sizing / Guesstimates7. Miscellaneous

Most of the cases given are often a mix of these basic categories.In the following segment these areas will be introduced with representative questions.

PROFITABILITY / PROFIT IMPROVEMENT

Profitability cases often require you to analyze a situation and determine potential reasons for

the clients drop in profits. This will test your understanding of product portfolio mix and severalother factors.

Examples:

1. How can a mid-size domestic airline regain profitability?2. How would you evaluate the profitability of a Big Five accounting firm? What are the

best measures?3. You are contracted by a CEO of a supermarket chain, whose profit margin is

declining. Why? Assess the situation.4. Your client is the National Beef Board. The board wants to know if its advertising

campaign has been successful. How would you evaluate the campaign'sperformance?5. Over the past few years, the client, a retail bank has gone from one bank in one

state to eight banks in eight states. All of the banks are operated autonomously andthe company as a whole is losing money. Specifically, four individual banks arelosing money. The parent bank has tried to mandate cost reductions and has formedcommittees with representatives from each bank to address these problems.

6. You are working for a firm whose bottom line is declining and senior managementthinks it is because of transportation problems. What would you do?

7. Your client is a manufacturer of large jet engines in the U.S. with 40 percent of themarket. There is one major U.S. competitor and one potential Japanese competitor,

Basic CaseInterviewCategories


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deregulation, but it has now stalled. The client wants to know how you wouldevaluate the situation.

9. Your client is a manufacturer/distributor of disposable hospital gowns. Industry salesgrew quickly until two years ago, then leveled off. Half of the hospitals say that clothgowns are more economical, while the other half believes that disposable gowns arethe better choice. What should the client do? Part II: Given that the cost advantage

for cloth is 3.75 to 1 in favor of cloth for non-customers, what are the strategicalternatives available to the firm?

10.What are the concerns of the Dean of the Business School?11.Your client is Dominos Pizza. You've just heard that Pizza Hut is entering the home

delivery business. How big a threat is this for Dominos?12.What are the differences between beer distributors and groceries distributors?13.A beer company has asked you to review the beer industry, taking into account all

the changes in drinking habits & new product introductions. Assess the future marketand discuss what strategy the company should pursue.

MARKET EXPANSION / NEW PRODUCT INTRODUCTION

This type of case involves your ability to recommend a strategy to enter a new market orbring a product/service to market. This type of case strongly tests your ability toanalyze the competitive landscape and the clients core competencies.

Examples:1. An East Coast tire retailer is looking to expand in the Midwest. The retailer has the

largest (15 percent) share in its existing market, with three competitors who eachhave 10-12 percent share. The rest of the market is fragmented among independentservice station-type outlets. Assume that the Midwest market share distribution issimilar, except that the clients current market share is proportionately distributed

among the existing operators. The client has retail-only outlets. The other principalcompetitors also operate service bays at their outlets. Assess the factors related tothe expansion. (Issues to consider: What are the underlying economics of thebusiness? What are the principal factors affecting customer purchase decisions?How price-sensitive are customers? What are the cost structures of the varioustypes of retailers? What are the likely competitor reactions? What are the benefitsto a market expansion?)

2. What is your understanding of the organizational structure of the consultingindustry?

3. A large glove manufacturer with one major competitor sells product to departmentstores and wholesalers. How would you assess the competitors' revenues andcosts?

4. Your client is an investment company that provides various services (e.g., CDs,IRAs, and Mutual Funds) to individuals. The company is thinking of expanding intoEurope. A) Should it undertake this expansion? B) If yes, and given that transactionprocessing is very computer-intensive and the firms United States office currentlyhas excess capacity, the company wants to know if it would be a good idea to do the"back-room processing of paperwork" in the United States?

PRICING

This category will test your ability to access your client in relation to competition andmay require the ability to guesstimate the value of the service/product in the


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marketplace. The key to this type of case is your ability to understand the basic cost-benefit relationships and microeconomic concepts such as fixed vs. variable costs.

Examples:1. The 14th century inventor of the telescope wants to know: 1) What is the market for

his good, and 2) How to price it? (Hint: Identify uses for product and corresponding

user segments.)2. How would you price and sell services in the consulting industry?3. Your client is a symphony hall. Revenues at performances are declining. Given that

the symphony hall's goal is to maximize exposure while covering costs, what shouldbe done?

4. Why are airline prices so volatile?5. The production of phone books is essentially a monopoly. There is unlimited

production and prices have bounced around in the past. The client wants to know abase price, lowest acceptable price, and prices it could charge various customers.How would you go about pricing an ad for the yellow pages?

6. Part I. How would you price milk? Part II. Your client is an organic manufacturer of

milk; how would you advise your client to price his product?

INVESTMENTS / STRATEGIC ACQUISITIONS

These forms of cases will ask you to help determine whether or not a specificacquisition or merger would be advisable for the client. This type of case will oftenoccur in identifying your ability to analyze supply chains, access the market, andvaluation of the particular elements in question.

Examples:1. Your client is a German manufacturer of metal alloys that has been approached by a

specialty alloy firm proposing a merger of the two. The specialty alloy manufacturersells product to steel makers. The firm has the smallest market share of four playersand has lost money in each of the last seven years, except for last year. The firmscosts have remained constant over the time period as has its market share. Shouldyour client go ahead with the merger?

2. Your client is a large manufacturer of tractors for agricultural and industrial use. Theclient is considering sourcing some of its tractors from a competitor. What wouldyou do? What impact would this move have on your manufacturing and dealernetwork?

3. Your client is a sawmill that logs and processes timber into construction wood.Currently, it is making a lot of money and wants to know how to determine whether itshould buy more mills, sell parts of its operations, or do nothing. What would youadvise?

4. A waffle factory is at 100% capacity. How can it increase its capacity?5. A beef manufacturer is thinking of integrating forward and selling branded beef.

Should it?6. A chemical company is trying to decide whether to acquire/expand capacity. How

would you advise it? Why? Related Question: How would you structurecompensation for an individual plant manager of the chemical company?


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SIZING / GUESSTIMATES

These are questions that require you to be able to logically determine a certain quantity.Often these will not be free standing types of questions, but will be required as yousolve a larger case. This could exist as a case focusing on the automotive industrymight require you to determine how many tires are sold for SUVs per a year.

Examples:1. Estimate the amount of tea in China.2. Estimate the number of airline passenger miles flown in one year.3. Estimate the number of skis sold in one year.4. How many light bulbs are sold in the United States each year?

Possible Answer:Assume every bulb is replaced once a year.Determine number of households (250,000,000/4).

Assume 20 bulbs in an average household.Triple that estimate for industry usage.

250,000,000*20*3/4.5. Value the US as an option of the world and give a numerical answer.6. Estimate the number of gas stations in the United States.

Possible Answer:If you figure there are 250 million people in the U.S. and one car per four people

and maybe 500 cars for each gas station, the answer is 125,000.7. Why are man-hole covers round?

Possible Answer:They can be moved by rolling, and if they were square, they could fall down the

hole.8. If you were to put artificial turf on all the Major League ball-fields, how many square

yards would you need?9. Why do many vending machines and juke boxes have both letters and numbers?Possible Answer:

There would be too many buttons otherwise.10.If you were a product, how would you position yourself?

MISCELLANEOUS

There are many other types of cases that are possible that do not meet any of thesecategories or are combinations of the above styles.

A major development recently in this category is the advent of the E-Commerceoriented case. These often focus on questions related to the New Economy as it

pertains to one of the other categories. These cases also intend to evaluate yourunderstanding of the new technologies or trends in the marketplace.

Examples:1. Our client is a local bank who now is seeking to enter into the on-line banking

market. Do you think this is a good idea? What is the potential market for our clientand growth?

2. The client is a small startup who is in the on-line independent movie distributionchain. Given recent events in the on-line music industry what do you think is thebest means to grow in the market?


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3. The client is an accounting firm, whose growth has recently stagnated. How wouldyou think about productivity? What would be the optimal size of the firm? Howcentralized should its operations be? How should it motivate its professionals?

4. Give me your marketing plan to become a partner, including a timetable.5. A commercial bank has inefficiencies in its loan operations. Think of the process as

involving three steps: 1) Application and approval. 2) Loan money 3) Close loan.

What would you look at?6. Why is the trade deficit an issue for the United States? Why is the budget deficit an

issue? What are the implications of both?7. A major airline with a reservations system is thinking about working with a software

developer to add a feature to its system that can track fraud by travel agents. Theprimary fraud perpetrated by travel agents is backdating tickets (i.e. issuing 14-dayadvance purchase ticket, 10 days before an actual flight.) How would you advise theairline to evaluate whether they should add this feature?

8. A consumer goods company manufacturing shampoo is having problems at thecustomer locations with cyclical demand. The marketing, manufacturing, production,and sales departments are not communicating effectively. Furthermore, a bottle

supplier is not meeting demand on time, shipping bottles to us a few weeks behindschedule. How would you approach the situation to produce the right brand and sizeon time while keeping inventory low and smoothing out the demand cycle?

A catalog producer for an L.L. Bean-type company has a mailing list of past customers,about twelve million. Currently, it ships four million catalogues but these are notreaching the right people. Sales per catalogue is decreasing, but sales overall haveincreased. Determine a strategy that will optimize both the number of catalogs shippedand the target customers receiving them.

CENTRAL PARK

Background: Giuliani wants to lease central park to raise some revenue. The lease isfor 99 years. The client has retained you to advise them on controlling and operatingcentral park. Giuliani will accept sealed bids the highest bidder will win, as long as theuse meets expectations.

Question: What should we do with Central Park and what should our bid be?

Case Information:

Expectations are that the buyer can build on no more than 20% of the park. Buildingsites can be roughly 2-5 stories in height, though no high rises. The buyer can putthese facilities to any purpose.


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The client has other New York assets/facilities.

The client is Disney (this information should only be given out if requested).

Giuliani will take the highest bid no matter what the highest bid is.

If the person taking the case comes up with a figure, tell them the client is the onlybidder. What should they bid?

Analysis of case:

First, the person should determine who the client is. This information is vital to how tostructure what to do with the park. Regardless, the case taker should come up with arough format of how to value the park. Setting up this format will drive out potentialuses, the value of each use to a particular person or persons, the amount the client can

charge for such a use, and some assumptions about the aggregate fees per day andper year for each use. The case taker should also consider multiple uses for differentparts of the park. Sample uses include leave as a regular park but charge for usage,make a theme park or amusement park, create a permanent concert venue and chargeadmission, install housing, put up other commercial or retail space. Although the casetaker need not explore each one, he/she should choose one and get an idea of howmuch the value would be.

After the case taker puts some assumptions around value and what to charge, the dailyand yearly usage figures should be estimated. These estimates are back of theenvelope; the giver is simply trying to see if the taker can think on his/her feet and come

up with reasonable assumptions for the value of the park. For instance, as a regularpark, the buyer could charge admission. If the users currently get $8 of utility from afree park, it might be reasonable to assume that the client could charge each user $4 avisit. If we assume that 5000 people visit the park daily after the admission fee isinstituted, then the park generates $20,000 a day. Multiply times 360 to get that thepark is making 7.2 Million per year. Since the lease is essentially forever, pick anacceptable discount rate, say 10%, and the park is worth $72 Million.

Obviously the taker should use simple numbers to help out the math. Also, the takershould mention that no costs are factored in, and that the utility would need to bemeasured for feasibility. Other uses of the park would clearly bring in other cash flows,

including up front capital expenditures.

Finally, if the case taker suggests a figure, mention that NY will take the highest bid nomatter what and that your client has is the only bidder. The bid should be somethinglike $1.

Comments: If done correctly, it can be cracked in less than 10 minutes. This casemixes concepts from marketing and finance, forcing the taker to make assumptionsabout uses and discount potential cash flows.


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REGIONAL ASIAN BANK

Background:

The processing division of a large, regional Asian bank wants to improve its cost-to-revenueratio (CRR). Present calculations reveal that the current CRR is 0.60. The client wants to

improve this to the industry standard of 0.40.

Question:

What strategies can the client pursue to lower its CRR to 0.40?

Case Information:

The client provides back-office services for the banks three other divisions: RetailBanking, Corporate Banking, and Regional Banking. These services include: creditprocessing, payments processing, customer service processing, call center services,and credit card processing.

The client receives $100M in annual revenues. In the past, revenues have always grown

or diminished in accordance with industry trends; costs increase and decrease inproportion to revenue. This trend is expected to continue in the future. An analysis of therevenue/cost distribution will show that revenue and costs are distributed evenly amongthe three customers. [The candidate can calculate that costs are approximately $60M]

The client is organized into three highly independent groups, with each group servicingone customer. Analyzing the individual groups will reveal that none of them stand out asbeing particularly inefficient, and they all have CRRs of about 0.60. However, there aremany similarities and overlaps in the processes they perform (all processes are handledinternally). [There is no need for the candidate to explore the specific processes oroverlaps.]

A cost analysis will reveal two types of costs: labor, and systems. Labor costs stem from

the organizations workforce of 1,000 employees, with an average annual salary of$40,000 to $45,000salaries are in accordance with industry standards. [Salary cutsare not advisable.]Systems costs are primarily IT related, and comprise the remainderof costs.

A study of the clients IT systems will reveal that they are below industry level insophistication.

A competitive analysis will reveal that the average industry cost distribution is 60% labor,40% systems. No other information is available about competition.

The client has no control over the volume of revenue it receives from its three internalcustomers. Furthermore, the client believes that strategies to boost revenue by fine-tuning the operations of its customers are beyond the scope of the engagement.

The clients pricing for its internal customers is consistent with the industry standard. Theclient is aware that it can increase revenues by increasing internal pricing, but would liketo hear other recommendations.

Analysis of Case:

The case can be approached by looking at ways to reduce costs and increase revenues in orderto hit the target.

The clients labor/systems cost mix is 70/30%, compared with an industry standard of60/40%. Upgrading IT systems may allow it to decrease its workforce, and reduceoverall costs.


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The client can integrate its three groups, and look for synergies. Possible synergiesinclude integrating common processes, and transferring best practices. This can result inreduced manpower requirements, and further cost savings. (The candidate should listpossible synergies that can occur from integration.)

Retail BO

Retail

BOCorporate BO CorporateRegional BO Regional

Reducing costs may not be enough to achieve the target CRR. There are no options toincrease revenues from the internal customers; however, the client can exploreinsourcing, where they can offer processing services to external banks for services thatthey have high competencies in. This can increase revenues substantially, while bringingeconomies of scale.

The client can combine the insourcing strategy with outsourcing the processes that itdoes not have competencies in, and are not highly sensitive. The client can determineits strategy to maintain, develop, insource, or outsource the different processes as

follows:

Competency

High Low

Sensitivity

High Maintain

InternallyDevelop

Competency

Low

Insource Outsource


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PAINT OR LAMINATE

Background: A client has come to you with a new technolgy which will label bottles in away that makes them look like they have been painted.

Question: How valuable is the technology?

Case Information:

There is a limited set of companies which make bottles and apply labels. When a bottleis to be painted, a different company will generally do the painting, but will notnecessarily create the bottle: 10% of the painting is done at the glass manufacturer.(There are actually only 4 players in the market and it is mature; the case taker shouldrealize that margins are low and glass bottles are a commodity)

The market size of the paint and label business today is $50 billion. 10% of all bottlesget paint.

Current paint technology provides crude images. The new laminate would create sharpbright images.

Each color painting today adds additional expense; the new laminate would notnecessarily be so.

The laminate is more expensive than paper, but cannot be scratched off.

The cost per bottle is $0.20 for paint, $0.15 for the laminate, $0.05 for paper labels.

An un-labeled bottle costs $0.05.

Potential Questions:

Who wins and who loses with this technology?

Who really needs it?

Analysis of case:This case involves a little math and some reasonable assumptions on the part of thecase taker.

The case taker could move down the path right away of who might need thistechnology. The case taker should instead focus on the numbers, and then come backto that discussion at the end.

Realizing that the market is $5 billion a year and the cost is still high for your product,you could really only charge no higher than $0.19 per bottle for the laminate. In fact,you may only be able to realize a couple cents per bottle, since the bottlers need someincentive to move to your product. Thus the actual value of the technology would be


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Documents

University of Chicago - How to Do a Case